Sterling dumps – and we’re short
I was somewhat amazed by sterling’s strength as it climbed off its March Corona Crash low of 1.14 – and especially from the mid-July levels around 1.26 to the 1 September high at 1.35. What were traders smoking?
Yes, the dollar was weak in this period but sentiment was definitely bullish the pound. The same sentiment affected shares as the prevailing view was that the economic effects of the pandemic would be short-lived and that with the Fed and other central banks pumping oodles of dosh everywhere, no real harm would be done.
And with that Fed largesse, the dollar was doomed and interest rates would keep falling for ‘longer and lower’ thus preventing any rate shock to economies. That belief enabled companies and sovereigns to keep pumping out the bonds with abandon. And the price-insensitive buyers would keep lapping them up.
But when sterling reached the 1.35 mark, I began looking for a reversal to trade – and I did not have to wait long.
The bounce off the hit on the blue trendline was my signal and we shorted on Thursday 3 September, two days after the 1.34 high had been reached. Was that the high or was there more upside? Of course, in real time, I could not say with any certainty but it was an excellent candidate for a short trade.
And then over the following few days it emerged that the UK government were proposing to mess about with the EU treaty over Ireland (what else?) and that hit sentiment hard as traders now had to factor in the real no-deal prospect, whereas before the market assumed a deal would be reached in the final seconds ahead of the finishing line, which is the EU custom.
Sterling is down down a whopping 7 cents in a week thus making our short trade very profitable. But my point is that I acted fast to advise the trade to members. If I had waited just a few more days ‘to get comfortable with my decision’, most of the profit would have vanished.
Most of the time, we are making quick-fire judgments based on incomplete evidence – usually before wave patterns have fully completed. The irony is that by waiting for these patterns to complete and provide more certainty, any idea of a profit would have vanished. This is the art of anticipation/forecasting in a nutshell.
And here is another trade I advised to VIP Traders Club members – the cross EUR/GBP. I identified that entry also on Thursday 3 September as a candidate for a huge trend reversal.
and what a reversal it is proving! The increased tension between the EU and UK has done wonders for my well-timed entry and the impulsive action mirrors that last seen During the Corona Crash. Of course, when I put that trade on, there were no headlines about the EU/UK rift.
In fact, with the market dipping tot he Fib 62% of the ‘b’ wave, I felt quite confident that the reversal would occur – and also that sterling would decline. The news coming out after entries only served to give a boost to my forecasts.
US Grains continue flying high
I have been covering these very important – but much-neglected – markets for some time and became very bullish on them firstly last year and more recently in August (Wheat and Corn). Basically, these crops’ prices had fallen into record or near-record lows on large carry-over stocks from previous years over-supply based on great weather.
I figured all it would take to get them moving back up would be a break in the great growing weather patterns and a reluctance of farmers to plant these low-paying crops again in favour of more lucrative crops.
In other words, I figured the downsides were pretty limited and I well remembered an old trader’s saying that the cure for low prices is low prices!
And in fact, prices are moving up smartly but in the case of soybeans, are nowhere near the average price for the past few years.
We have just broken above the blue trendline and on its way towards the two target bars. But there is one worry – COT tells me hedge funds have really jumped on the long side:
and they are almost 5/1 long. Hmm. But if they are long-term holders, they should not get shaken out of the tree too easily during dips. The Commercials (farmers, processors, crushers) hold most of the open interest and they have been largely hedging the soon to be harvested US crop. That is when short hedges tend to be lifted.
And deliveries on the crucial November contract are very closely watched for signs of of a squeeze. That is why that month and also in October leading up to first notice day is an important feature in the calendar.
FLASH: The beans hit the psychological $10 last night for the first time in over two years.
We have a similar bullish story in Wheat and Corn. VIP Traders Club members have been long from the start of the bull moves.
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The game is up for the FAANG Gang
I was watching in amazement as this FAANG Gang member climbed relentlessly after the March Corona Crash low and made it into new ATH ground in May. And by August, it had doubled. That is what I call a mania – coming after a huge decade-long rally phase. Here is my Elliott wave scenario on the weekly
and my signal was generated from the short term chart:
The ATH was set on 26 August at $307 as it made a small overshoot of my blue trendline. It has fallen to $266 (drop of 13%) and should stage a small fourth wave bounce soon. If not, then more downside is likely.
An impulsive five wave completion would turn the odds very strongly to my forecast bear trend.
A very interesting development last week – the COT data shows that hedge funds are now net bullish for the first time since the March Corona Crash. That is remarkable, give the huge manic advances since then in all indexes.
It appears they had been hedging vigorously on the way up and now with the indexes well off their highs are lifting t hose hedges. That is a very bullish-seeming scenario – and is actually bearish for prices! When the trend-following hedge funds turn bullish after a strong rally phase, look out below!